Guernsey: Top Tier Fiduciary Offering

Originally published in Private Client Practitioner Guernsey
Supplement, December 2011

Guernsey is widely recognised as one of the leading
offshore jurisdictions. How well has it fared during the global
economic downturn and how can it remain at the top of its game.
Peter Niven of Guernsey Finance takes a look at the island's
current situation and next steps.

The global financial crisis initially came to a head in 2008,
yet more than three years later and we continue to see the
repercussions, particularly in the eurozone but also through an
ongoing worldwide economic downturn.

Guernsey has proved extremely resilient, but as a leading
international finance centre, we cannot be completely immune from
these worldwide issues. However, the key indicators are suggesting
that the island is performing more strongly than many of our
closest competitors.

The financial crisis and its aftermath have also brought renewed
focus on so-called 'offshore' centres. I am very pleased to
say that during the last 12 months the International Monetary Fund
(IMF), Organisation for Economic Cooperation and Development (OECD)
and the Financial Stability Board (FSB) – which was
reporting to the G20 – have each given Guernsey more than
just a clean bill of health.

The fact that we are recognised as within the top tier of
international finance centres provides the island's finance
industry with great confidence. Our fiduciary sector is building on
its experience and expertise to unlock niche opportunities in the
wealth management space as well as looking to attract new flows of
business from the emerging markets.

Sector trends

Guernsey's fiduciary sector has been a mainstay of the
island's finance industry during the last 50 years. Looking
back over the last decade we can see that superficially the sector
hasn't really changed. Today, there are some 150 full corporate
licensees (as well as more than 50 licensed individuals who can act
as directors, co-trustees or trust protectors) employing more than
2,000 members of staff. These figures are not particularly
dissimilar to those from ten years ago.

However, technological developments assisting the administrative
functions for maintaining and indeed, enhancing this wealth have
allowed us to significantly increase assets held in trusts and
companies in Guernsey so that the total value now stands at more
than £350 billion.

During the last 10 years, the ratio of the number of independent
trust companies to those owned by corporate entities from other
sectors – notably banks – has remained fluid.
Yet, regardless of formal ownership status, there has been without
question ever-increasing integration and cooperation between
sectors.

For example, the close links with the banking sector remain and
notably these providers benefit from the assets coming into the
fiduciaries. At the end of June 2011 deposits with the 39 licensed
banks in Guernsey reached nearly £114 billion. These figures
have also been swelled by the island's thriving investment
funds industry, where the value of funds under administration and
management reached a new record high of more than £274
billion at the end of June 2011.On the back of such success,
fiduciaries have increasingly looked to develop a funds presence in
terms of providing administration and company secretarial
services.

Within the investment world, the partnership structure has been
a familiar concept for many years and yet more recently it has been
adopted by the wealth management sector to offer the Family Limited
Partnership (FLP). The FLP provides similar levels of asset
protection and flexibility in management to a trust but allows
lifetime gifts without the charges to inheritance tax.

The cell company concept was pioneered in Guernsey for our
pre-eminent captive insurance industry but both the protected cell
company (PCC) and now the incorporated cell company (ICC) are being
increasingly used within the fiduciary sphere.

In addition, Guernsey's asset management and stockbroking
sector now has more than £81 billion under management,
including increasing amounts from fiduciaries, especially those
providing trust structures for life insurance products and overseas
pensions.

Niches

Guernsey's heritage in fiduciary services has been a
significant factor in the island becoming the jurisdiction of
choice for Qualifying Recognised Overseas Pensions Schemes (QROPS)
and related products. Data direct from Her Majesty's Revenue
& Customs (HMRC) shows that during the first half of 2011 there
were more pension transfers into QROPS in Guernsey than any other
jurisdiction globally.

Within this overseas pension space, the island has displayed its
ability to adapt and be fleet of foot. We are now looking to
maximise these characteristics to unlock the potential from other
niche areas such as providing the financial infrastructure around
films and cleantech. In addition, Guernsey's Government has
agreed to establish a registry for aircraft belonging to local
residents and those held through fiduciary structures on behalf of
clients.

The aircraft registry will provide the local fiduciary sector
with an extra tool to meet client needs, and comes at a time when
Guernsey is to become the first jurisdiction in the world to
recognise image rights in law and provide them with a register.
This will be managed by the Island's Intellectual Property
Office – which is part of the Guernsey Registry
– and will add a further dimension to our cutting edge IP
offering.

Emerging markets

The Guernsey Government has also been consulting on draft
foundations legislation. The introduction of foundations will
provide another tool for practitioners to meet the needs of
clients. In particular, we expect the foundation structure will be
attractive to clients based in civil law jurisdictions in Europe
and also in 'emerging' markets such as China, Russia and
Latin America where the trust concept is less familiar than in
common law countries such as the US, Canada and the UK.

Indeed, we are already seeing that our practitioners are
increasingly attracting clients from further afield. The
traditional sources of the UK and Europe are being supplemented by
new business from India, Russia, the Middle East and the Far East.
We are working with the Guernsey Government, regulator and industry
to build key relationships and raise awareness of our offering in
these regions so that we have access to a further pool of potential
new business flows in the future.

The introduction of foundations is part of that strategy, and
I'm hopeful that by early next year Guernsey practitioners will
be able to offer a foundation, which enables clients to preserve
and enhance their wealth and assets through a highly regarded
structure in a reputable jurisdiction.

Reputation

Guernsey's reputation was further enhanced earlier this year
when the IMF published six evaluation reports, which commended
Guernsey's high standards of financial regulation, supervision
and stability along with our robust criminal justice framework.

Guernsey's proactive stance regarding tax transparency and
exchange of information means that earlier this year the OECD built
on our 'white listing' in April 2009 by endorsing our
continued commitment to tax transparency and exchange of
information.

In addition, an FSB report prepared for the G20 meeting in
Cannes recognised Guernsey as within the top tier of jurisdictions
adopting international standards and thereby demonstrating strong
commitment to financial stability.

Guernsey has now signed TIEAs with 29 jurisdictions globally,
and financial institutions in Guernsey were given a window from 1
January 2011 to 1 July 2011 for moving to automatic exchange of
information as part of equivalent measures the island adopts in
relation to the EU Saving Tax Directive.

Top Tier

What we can see is that Guernsey never rests on its laurels and
is always looking to the future but we do continue to face
challenges. For example, the 'zero-10' corporate tax
regimes of the three Crown Dependencies have come under scrutiny
from the EU. We are currently reviewing our position, but it has
been made clear already that we must adopt a regime which is both
compliant and competitive in the long term.

So, not everything in the garden is rosy but we are confident of
being able to take the necessary steps to ensure that Guernsey
remains a leading international fiduciary centre well into the
future.

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